I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

BP And Shell Have Problems, But Manageable Ones, With The Russian Sanctions

The imposition of sanctions on various Russian people and organisations over the Ukraine threatened to pose a number of problems for the big energy companies, especially BPBP and Shell. Exactly what problems depends on the exact organisations placed upon the sanctions list. As we all know the aim is to target those who are close to Vladimir Putin so as to make that inner coterie bear the burden of our displeasure at what is happening in the Ukraine. The problem for the energy companies is that they’ve got large investments in Russia, often with either the people or the companies that the sanctions are being aimed at.

Sources in Washington say the US Treasury may soon extend the black list to Igor Sechin, president of the oil giant RosneftRosneft, the biggest traded oil company in the world. Any such move would be a costly headache for BP, which owns 19.75pc of Rosneft’s shares under a deal reached in 2012 ending its stormy misadventures in TNK-BP.

It is unclear whether BP could continue to operate in the United States or even carry out its global business smoothly if it continued to be a Rosneft shareholder with Mr Sechin still in charge, yet it would be difficult to find buyers for a holding worth $12.5bn in the midst of a crisis.

Shell has similar problems over its work with GazpromGazprom if Gazprombank were to be included in the sanctions. As it turns out there are headaches but wholesale divestment won’t be necessary, at least not yet, under this level of sanctions. For while several organisations have been added to the list those major energy companies have not been: only some of the management. This does, as I say, cause a problem for BP:

The sanctions could prevent US citizens such as Bob Dudley, BP’s chief executive, from dealing with Mr Sechin.

Mr Dudley has a seat on the Rosneft board alongside Mr Sechin, after signing a $27bn megadeal in 2012 in which BP effectively paid almost $15bn for shares in the Russian company.

Mr Sechin was named on Monday on the US Treasury’s list of “Specially Designated Nationals” (SDN), along with Sergei Chemezov, deputy chairman of Rosneft’s board of directors.

According to the Treasury, once an individual or company is named on the SDN list “their assets are blocked and US persons are generally prohibited from dealing with them”.

Assuming that sanctions stay at this level then it’s easy enough to have workarounds. Dudley simply doesn’t partake in those board meetings, perhaps sending a non-US citizen as his deputy. BP itself doesn’t have to divest itself of that shareholding and there’s no threat to licences and permissions to operate in the US.

Which leads us to an interesting point. At some point intensification of these sanctions would lead to significant problems for such companies. If Rosneft itself were placed on the list, for example, or Gazprom, the the respective situations for BP and Shell would change markedly. Neither are US companies and so are not directly covered by US law on who they can deal with. But obviously neither of them is going to flout the law of a country where they have such considerable interests, as they do in the US. But this rather leads to the conclusion that even if things do get worse in the Ukraine then sanctions won’t be applied to such companies. We might think there’s value in annoying, putting pressure upon, Putin’s confidants but there’s absolutely no point at all in forcing oil majors to divest, at a discount price, themselves of their Russian operations. Quite the contrary, that would just enable those very same Putin confidants to pick up those assets at fire sale prices. Very much not the thing that we want to do.

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